Raising capital is hard. Nothing is more daunting to most entrepreneurs. And for good reason. It’s a time-consuming process shot through with rejection and, inevitably, self doubt.
But capital is the lifeblood of business. If you can bootstrap on organic revenue, great. Do it. But most technology companies—particularly high-growth, high-technology companies—need years of outside capital to reach profitability.
So let’s talk about how to get it.
Sales, Not Marketing.
Many of you don’t want to hear this but raising capital is a sales job. Capital will not just show up. You need to pursue it, pitch it, and close it. You need to create a pipeline and work it. Invest in a CRM or build one in Google Sheets.
To that point, crowdfunding is not the answer. Product founders like the idea of crowdfunding: you create a landing page, push it to social, and let the cash roll in. It’s marketing, not sales.
But it doesn’t work like that.
Crowdfunding can be useful as part of a broader B2C marketing push. But it’s not a great way to find capital. There’s too much noise. It’s terrible for B2B. And when it does work it typically takes more time and energy than just tracking down a few good investors.
That’s why step one in securing capital is: think sales, not marketing.
Your Ideal Investor Profile.
In sales there’s a concept of your Ideal Customer Profile. It’s a thumbnail sketch of your perfect buyer. Similarly, your search for capital should start with an Ideal Investor Profile.
An Ideal Investor Profile will include a few key pieces of biographical data. While most investors—particularly VCs—are a partner in a firm, your ideal investor is the individual partner and not the venture firm. Individual partners, not firms, champion deals, negotiate deals, and serve on portfolio-company boards.
- Stage: What stage of fundraising is your company at? You need to find an investor who actually invests in companies at your stage: Angel, Seed, Series A, whatever. Many investors and investment funds have a thesis around early or late stage investments.
- Focus: Investors tend to focus on specific industries or business structures: robotics, two-sided markets, fintech, DTC, and so on. Look for investors who are focused on your space. Some funds are focused on a specific sector. Others have a broad focus with individual partners specializing by sector like a law firm or accounting firm.
- Vintage: What is the age of the investor’s fund? Vintage matters because venture funds typically deploy capital in the first three to five years of their life cycle and exit deals by year ten. You want an investor that raised a fund in the last 3 years or so.
- Location: Where is the investor located? Geography matters less today than it did a few years ago. We’re all in the Zoom-room metaverse now. But some investors want to do deals with companies near them so it’s easy to do in-person board meetings and pop by the office.
Make a List. Work that List.
Once you have your Ideal Investor Profile, it’s time to make a list of potential investors. Start with your network. Then look around online. Search Crunchbase. Search Angel List.
You won’t have great success cold-emailing investors. It’s better than nothing. But you really want a warm introduction. Use your network to find someone who knows someone who can introduce you to your ideal investor. Someone like another investor, a trusted advisor, or—the gold standard—an entrepreneur the investor has backed before (successfully or not).
If you don’t have a network, you need to build one. That may take a while. But the second best time to plant a tree…
Attend meetups and conferences. Join industry groups. Participate in online forums. Don’t be shy about reaching out to people on LinkedIn. The worst they can do is ignore you.
Network your way in. (This study shows what networking through a seed round looks like.)
Remember, the best investors get pitched all the time. The best way to get in the door is a warm introduction.
Once you land a meeting with an investor, it’s time to get your pitch on point. You need to be able to explain what you do, why it matters, and how you’re going to win. All in 15 minutes or less.
There’s a lot of great advice out there on how to pitch investors. Here’s a pretty standard formula. You can use this or any of the similar formulas to lay out a pitch deck and structure your presentation.
- Market Size
- Business Model
But remember, this is a sales job. You need to tailor your pitch to your audience. Know what your target is looking for. Do they care more about market size or team? Are they focused on revenue or user growth? You can glean some of this information from the investor’s social presence and prior investments. To some extent you’ll have to pick up on it during your pitch.
Get After It!
Raising capital is hard work. It’s time consuming. It’s emotionally exhausting. But for many entrepreneurs, it’s a necessary part of the journey. So get after it. Create an Ideal Investor Profile. Make a list. Work the list. Prepare your pitch. And when it all works out and you’re signing your way through a tower of documents, remember, this is not the end. This is where the real work begins.